As one of the world’s largest e-commerce platforms, Shopify (TSX:SHOP) is a popular stock for many investors around the world. The Canada-based e-commerce giant has seen impressive upside from its 52-week low, surging more than 83% from its lowest point over the past year. These kinds of returns may certainly turn some investors off, as such an increase can indicate the market may be getting overly excited about this company’s prospects relative to its past performance.
That said, most readers will know that I think this recent surge is certainly warranted, and could continue. In fact, the stock has now nearly tripled from its most recent low in late-2022, and could double again and still not be at its post-pandemic peak. That’s the nature of the volatile growth stocks Shopify represents.
Let’s dive into where Shopify could be headed from here and if the stock is still a buy at current levels.
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Strong growth driving the story
Unlike many growth stocks in other industries (ahem, AI companies), which have seen extreme valuation increases on a relative lack of catalysts, Shopify has a lot going on under the hood. The company’s core e-commerce platform continues to provide strong growth. Indeed, the excellent Q2 earnings beat is evidence of just how well the company is performing overall.
Shopify’s revenue grew 25% on a year-over-year basis to $2 billion, excluding its logistics business. This marked the fifth consecutive quarter of revenue growth, suggesting that the growth acceleration investors have seen is for real. Undoubtedly, this is going to be a key driver for Shopify’s stock price over time and is a key factor I’ll be watching as well.
On the earnings front, Shopify brought in gross profit of around $1 billion, which also grew at a 25% year-over-year clip. That’s the kind of strong top and bottom line performance I like, particularly when we consider margins actually increased to 51.1% from 49.3% during the same quarter last year.
Long-term growth likely to continue
Now, the question many investors have is whether this recent growth can continue. That’s certainly a fair question. After all, we saw what the end of the pandemic did to the company’s earnings trajectory – there are some out there who think that e-commerce growth will eventually slow and plateau, and that’s something to be concerned about.
The thing is, I think Shopify still has plenty of levers to pull on the growth front. So far, the company’s global expansion strategy has paid off, with Shopify penetrating many markets around the world that are proving to be very profitable. More recent partnerships alongside leading brands like Everlane, Carrier, Nike Strength, and Oscar de la Renta could supplement the company’s already strong ties with small merchants.
In the European market, for example, Shopify is seeing its GMV increase 32% year-over-year, which is very bullish for North American investors who look at domestic numbers flagging somewhat. If Shopify turns out to be the global powerhouse many think it can, that’s a good thing for the stock in my view. Global e-commerce growth is really the play with Shopify stock, and this company could be the dominant player in this sector over the very long term.
